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Uncertainties in drug pricing

The government must take strong stand on drug pricing and deliberate over the important recommendations that come its way.

Uncertainties in drug pricing
The National Health Policy document 2017 has admitted that every year 6.3 crore people reside below the poverty line in our country. Nearly 70 per cent of the out of pocket expenditure on health is on the purchase of drugs. Therefore, pricing of drugs becomes an issue of paramount importance. The drugs are being sold as branded medicines and also branded generic medicines. In the case of many drugs, there is a huge trade margin between the price to trade (PTT), that is the price at which the marketing company sells the drugs to the distributor and the maximum retail price (MRP). Often this trade margin has been found to be 700 – 800 per cent. Since the MRP is fixed by the manufacturer, the logic given for such a high trade margin is that if this margin is reduced the retailers will not sell their products. Since the company wants a high sale and high profit, this trade margin has to be kept high. But in this, the whole burden falls on the consumer that is the patient. Till 2013 the price of the drugs was cost-based where the retail prices were fixed on the basis of a costing formula to arrive at a manufacturing cost with post manufacturing expenses. But 2013 onwards this was changed to market-based pricing, calculating the average of the highest selling drugs. This is a totally flawed approach.

On the question of pricing of the drugs, in a case of Ranbaxy Laboratories Ltd. vs. the State of Haryana, a drug strip of 10 tablets sold to the authorised dealer at Rs.2 had an MRP on the strip of 10 tablets as Rs.26. The Punjab & Haryana High Court noted, "It has to be noticed that although the petitioner is allegedly selling the drugs to the consumer at about 900 per cent of the reasonable price of the drug, there appears to be no legal provision in force to safeguard the consumers from such naked fleecing by the drug manufacturers by overpricing the drugs to such an extent. It is surprising that no remedial or ameliorating step has been taken either by the state or by the Union of India in this regard."
The government formed a committee on high trade margins in the sale of drugs under the chairmanship of Sudhansh Pant, Joint Secretary Pharma, Ministry of Chemicals & Fertilisers – Department of Pharmaceuticals, to delve into this entire issue. This committee submitted its report on December 9, 2015. However, it has now been 18 months that the government has been sleeping over this report. This committee recommended no capping on products where the retail price is up to Rs 2 per unit (per tablet, capsule, vial, tube, bottle, injection). But it recommended maximum trade margin to be 50 per cent on the product whose retails price ranged from Rs 2 to Rs 20, 40 per cent on retail price Rs 20 to Rs 50 and 35 per cent if the retail price was above Rs 50. Even though this committee did not spell out how the cost price of the drugs should be calculated, it took serious note of the excess trade margins. The government avoiding the report for such a long period raises scepticism on its intentions. The draft pharmaceutical policy 2017 talks only of good intentions but has no clear cut directions as to how it is going to control the drug prices to make them affordable to all. Some issues which need to be highlighted here are:
1. Price of a drug should be based on its cost accountancy and not on the market-based formula.
2. The idea of splitting the drugs into essential and non-essential is absurd because any chemical once labelled as a drug has to be essential as it is to be consumed only on the advice of a medical person.
3. The Uniform Code of Pharmaceutical Marketing Practices (UCPMP) should be fully implemented. Expensive freebies to the doctors should be made a cognizable offence and it should be ensured that money thus saved is passed on to consumers in the form of price reduction of drugs. Backdoor methods of offering such freebies through conferences should be done away with. The expenses thus incurred should not be included in the expenditure of the company.
In the draft pharmaceutical policy 2017 while the document admits the glorious role played by the public sector pharmaceutical units, it considers that these units have now outlived their utility. This again is a flawed approach. These units have been prioritising national needs. Because of the government's apathy, these units face hindrances. The government should look into the difficulties faced by these units and sort them out. By completely rejecting them we will never achieve the aim of affordable drug pricing.
(Dr. Arun Mitra is an ENT specialist, Senior Vice-President of Indian Doctors for Peace and Development (IDPD), member of the core committee of Alliance of Doctors for Ethical Healthcare in India. The views expressed are strictly personal.)

Arun Mitra

Arun Mitra

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